Recent housing price data shows that average home prices are at $425,000 than in 2021. Additionally, home mortgages have an uptick, with the average APR on a 30-year fixed mortgage at 5.53%.
Many factors determine if it is the right time to shop for a home. Let’s dive in and look into these factors to help you understand if it’s the best time to buy a home.
Is it a Good Time to Buy a House?
When you check out the housing market today, you’ll realize prices and mortgage rates are soaring. House listings don’t last long before buyers snag them. A house listing sells in 34 days, six days faster than last year. The housing inventory is taking a dip due to the slow construction rate.
So, what does this mean for you? There are many things to weigh beyond house prices and mortgage rates when buying a home. The possibility of home prices and mortgage rates soaring even further is high. Home prices will likely increase by 14.9% between March 2022 and 2023.
So whether it is the best time for you to buy a home depends on your financial muscle and the home prices in your location. If you have an excellent Debt to Income Ratio (DTI), credit score, savings for a down payment, and a stable job, buying your dream home might be closer than you think.
What Makes Home Prices Go Up?
Understanding the key factors determining housing prices is important for getting the best bang for your buck. Below are some of the variables affecting house prices, which could impact each other depending on the housing market.
Supply vs. Demand
The first thing pushing housing prices up is demand versus supply. The housing inventory is at historic lows due to the slow-building rate, meaning there are not enough houses in the market for buyers. The current housing market is a seller’s market, which means more interested homeowners give sellers a competitive advantage.
Millennials are the biggest home buyers making 43%. The age bracket makes up the largest generation, hence the high house demand.
Secondly, the current spike in demand is due to labor shortage and supply chain disruptions. Builders are grappling with the lack of workers and the impacts COVID-19 has had on the supply chain. This might explain the 4% drop in new house constructions.
Mortgage interest rates are also a big player in house price fluctuations. The Federal Reserve monitors and adjusts interest rates to protect against inflation. This means mortgage interest rates are sky-high with the current inflation scenarios.
When mortgage interest rates spike, buyers pay a higher monthly mortgage. Rising mortgage rates can also make consumers take mortgages for fear of them going up even more. Under such conditions, the houses sell like hotcakes.
Are the house prices in your area higher than those in others? The property’s location is another important factor that can impact the cost of housing.
The location’s infrastructure, security attractions, access to hospitals, and other developments can influence the housing prices. A well-developed area with access to good amenities like restaurants, cafes, and parks can be pricier than areas without. If you’re looking to buy a home close to a city, it might cost you an arm and a leg because cities offer access to better jobs.
The economic indicators can also influence the cost of buying a house. A thriving economy means that most people have secure jobs with better pay, giving them greater purchasing power. When most people afford to buy a home, the demand increases, triggering the demand vs. supply scenario.
On the flip side, a struggling economy means that people don’t have enough money to afford a mortgage. This causes the housing princess to drop, creating a buyer’s market. This means that there are more homes for sale than interested buyers, giving you leverage over the seller.
Time of Year
As the seasons shift throughout the year, so do the housing prices.
The bidding wars begin during spring and overflow through to summer when they peak. Fall can be an excellent time to buy a home since the real estate inventory is high and potential buyers are few during this season.
Are Mortgage Rates Going Up or Down?
Current mortgage rate predictions indicate an increasing trend. The 30-year fixed mortgage rate plan, which was 3.14% in April 2021, now averages 5.5%. The rates will be at all-time highs throughout the year.
Inflation and the Federal Reserve adjustments influence mortgage rate fluctuations. If the inflation rate keeps soaring, you can expect an increase in mortgage rates and vice versa.
What Affects Your Mortgage Rates?
Lenders will evaluate your financial capability before you can sign a mortgage. Your lender focuses on your creditworthiness to determine your mortgage qualification and rate. Below are some of the financial factors that influence your mortgage cost.
Like any other loan, your credit score influences your mortgage rate. Generally, if you have a higher credit score starting at 720, you can get competitively low mortgage rates from any lender. Securing the best mortgage rates with a lower credit score can be challenging.
Not all hope is lost! Check your credit score and find ways to improve it before shopping for mortgages. You can dispute false reports and reduce your credit debt to get good financial books. Alternatively, you can try Federal Housing Administration loans, which have the government’s full faith.
An FHA loan is a perfect option if you’re a first-time home buyer looking for an affordable mortgage. The FHA will insure your loan, and you can get a mortgage even with a lower credit score.
Mortgage loans are available in short and long terms. Generally, shorter loan terms have fewer risks to the lender, justifying lower interest rates. It is unlikely that your interest rates will rise rapidly with short-term mortgages, and a shorter mortgage payoff allows your property to build equity faster.
Different loan terms have their pros and cons, so it is important for you to weigh them. For instance, shorter terms can offer lower interest rates, but you may need to pay higher monthly amounts.
Your Debt-to-Income ratio, aka DTI, can also affect your mortgage rate when buying a home. The DTI is the percentage of your income you spend on paying your debt.
A higher DTI means spending a larger percentage of your earnings on debts, which means it is hard to take another loan. You can calculate your DTI using this hassle-free calculator. Most mortgage providers require a DTI that’s less than 36 to approve you for a loan.
If your DTI is high, it is best to lower it or save more money for a down payment. If you have the wherewithal, a downpayment can lower your rate and monthly payments, and you may not need to buy private mortgage insurance.
A home loan down payment is the money you’ve saved to pay upfront, which can be from 3-30% of your home’s cost. You’re likely to get a lower loan rate by putting down a sizable down payment on your home. Ideally, affording a 25% or more down payment can help you qualify for competitive mortgage rates.
A larger down payment on home buying can help you avoid Private Insurance Mortgage (PMI) and lower your monthly mortgage payment. A PMI is a monthly premium you pay to protect your lender. This insurance will cost you more money every month but benefit your lender. A significant down payment can also help you get multiple offers from different lenders, giving you a high chance of snagging a lower mortgage loan rate.
Interest Rate Type
Mortgage loan rates can be fixed or adjustable rates. The fixed mortgage rates remain the same throughout the loan term, while adjustable rates fluctuate depending on the market.
It can be easy to qualify for an adjustable-rate thanks to the initial low offer from lenders. However, as the market rates rise so will your adjustable rate, making it more expensive and lucrative to your lender. Qualifying for a fixed rate can be harder when the rates are high because the payments are high.
What is the Right Mortgage for You?
Below are mortgage loan types to fit every home buyer in the market.
A conventional home mortgage is any loan from private lenders but government-backed entities. These loans require an excellent credit score and lower DTI. Additionally, you will need to commit at least a 3% down payment and get private mortgage insurance for less than 20% downpayment.
The PMI rates are often lower for conventional mortgages than other mortgage types. You can get a conventional mortgage loan through a bank or credit union.
Federally-insured mortgage loans are also some of the best mortgage options for homebuyers looking for funding. These loans are available through federal agencies like the U.S Department of Agriculture (USDA), Federal Housing Administration (FHA), and Department of Veterans Affairs. These loans have flexible terms to suit different people.
Where to Shop Mortgage Rates
Shopping for mortgage rates can be tiring. You need to get quotes from different lenders or brokers and compare the costs. You might need to go through preapproval to get accurate quotes in some instances. Are you shopping for a mortgage? The sites below can help you compare and find the right mortgage for your dream home.
Choose Your Mortgage
Choose Your Mortgage does precisely that! It helps you choose the right mortgage to finance your home. You can use it to compare mortgage rates for home finance, making it easier to get the right lender. Choose Your Mortgage is a comparison tool and not a lender. The service is ideal when comparing average mortgage rates from different lenders.
Rocket Mortgage simplifies the home financing process with hassle-free online mortgage services. Whether you’re looking for home financing, Rocket Mortgage can help you review mortgage rates and apply online.
The mortgage calculator makes it easy to estimate your monthly payment and other costs. They tailor-make your mortgage based on your credit score and finances.
Get preapproved for a mortgage loan in less than three minutes with Better. You can close the mortgage deal faster with Better, and they offer 24/7 customer support. Better also has tools like the mortgage calculator and the amortization tool. You can calculate accurate monthly costs of any property and payment breakdown. Estimate your mortgage rates based on your location, credit score, home price, and down payment.
New America Funding
If you’re looking for a way to win the bidding wars, New American Funding is your mortgage shop. They can help you get your dream home through cash purchase and sell it to you.
Powered by cutting-edge technology, LoanDepot provides seamless and fast online mortgages. They use Mello Software to provide end-to-end secure online loan services. With LoanDepot Lifetime Guarantee, you may qualify for loans in the future with zero lender’s fee.
If you’re looking for a mortgage provider with unparalleled experience and customer service, LoanDepot is it. They’ve funded new home purchases worth $96B with over a decade in business!
Is it A Good Time To Be A Homeowner?
Whether the average mortgage rates keep going up or down, there is never a perfect time to purchase a home. Your financial readiness to own a home determines when to make a move.
Would you like to learn more about mortgages and finance? Here at Penny Calling Penny, we focus on helping you navigate your financial journey. Subscribe to our email list to get resources like this sent straight to your inbox.